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Investing in Cryptocurrencies – The Ultimate Beginner’s Guide

Basics of Cryptocurrency
Last updated December 24, 2019
Estimated Reading Time:
5 minutes, 36 seconds

Cryptocurrency traces its birth to 2009 when the Bitcoin network was created.

It wasn’t until nearly 10 years later the topic dominated headlines as the world was fascinated with early investors who turned a few hundred dollars into hundreds of thousands of dollars.

The media was fascinated with the topic and it made for a good story but few people actually understood what was going on.

This article will serve as an introduction to cryptocurrencies and double as a how to invest in crypto guide.

The background

It is important to first define a cryptocurrency.

As the name suggests, a cryptocurrency is simply a digital currency that offers a higher level of encryption. Much like cash, it can be used as a medium of exchange to buy or sell goods and services.

However, unlike a traditional currency that has been existing for centuries and to this day is controlled by a central bank, a cryptocurrency uses decentralized control.

Central banks (such as the U.S. Federal Reserve or the Bank of Japan) and their governments decide the flow of money in an economy.

Essentially, a small handful of powerful politicians and bankers decide among themselves that billions of dollars worth of new currency should be printed immediately for whatever reason they choose.

There is minimal oversight and the average citizen has zero say.

By comparison, the total amount of a cryptocurrency in circulation is clearly defined, and the value of each individual unit can be found on a cryptocurrency exchange.

For example, at the exact time of writing, there are precisely 18,092,775 Bitcoins in existence. This number will increase in intervals of around 10 minutes until there are exactly 21 million Bitcoins. Not twenty-one million and one!

While there are thousands of different cryptocurrencies that attempt to offer something new and unique, the most dominant and talked about one is Bitcoin.

But why?

why should you invest in crypto

Now that we have defined what a cryptocurrency is, you may be wondering why it exists in the first place. The founder (or founders) of Bitcoin remains a mystery. But the coin can be traced to a thesis paper written by the pseudonym Satoshi Nakamoto.

Simply put, the purpose of a new digital currency grants people the freedom to send funds to each other without a central government acting as an intermediary.

Cross border transactions can be facilitated and users can send money completely anonymously.

Gone are the days when banks, governments, and financial institutions require you to show your ID and ask intrusive questions. Try crossing a border with more than $10,000 and you will need to have a very good excuse or risk having it confiscated. But with cryptocurrencies, this will never happen because of the decentralized network.

Some hard facts

Here is a small sample of the vast trove of cryptocurrency data compiled by Visual Capitalist.

  1. The number of cryptocurrency users rose from 8.9 million in late 2016 to 42.3 million in 2019;
  2. The total number of cryptocurrencies in existence rose from 1,600 in 2018 to more than 3,000 today;
  3. Eighty-three percent of Gen Z people view the future of cryptocurrencies favorably;
  4. Cryptocurrency evolved from its original purpose to satisfy many needs such as digital finance.

Do you want in?

This portion of the article will now focus on how to invest in cryptocurrency.

Thankfully, the process of investing in a digital coin is no different than buying shares of Apple or Amazon. All you need to do is open an account with a crypto exchange platform.

As the name implies, a crypto exchange platform allows users to buy or sell cryptocurrencies. Think of it as a “stock market for digital coins.” Users can gain access to see the price of many digital currencies in real time, along with all of the buying and selling activity on the exchange.

Many platforms will allow users to fund their account with a credit card or bank account, but specific details vary from country to country.

Withdrawing cash is just as straightforward, and cash can be transferred to a bank account or kept in a cryptocurrency for an anonymous withdrawal. 

It is very important to research which crypto exchange to use. Be sure to check online for reviews and post questions in public forums like Reddit.

The first fully regulated crypto trading platform is Currency.com and it enjoys a stellar reputation. 

You bought a crypto? Congrats

buying your first crypto

After doing your homework, you bought one (or several) cryptocurrencies.

Congratulations, you invested in what could be the future of money. With that said you may be wondering how long should you sit on your investment for.

There are generally three options available to investors.

The first one is to trade it in a way that is no different from a stock trader. Cryptocurrency trading involves buying and selling a cryptocurrency in a short period of time. This can range from– a few seconds to minutes but generally doesn’t surpass a few days.

Cryptocurrency trading allows investors to capitalize on large swings in price movement, also known as volatility. It is common for the price of Bitcoin to move a few hundred dollars in any direction based on outside factors. Small cryptocurrencies can move much more at a faster pace, allowing investors to profit quicker.

Of course, many other investors believe there is no other rational choice than to hold their cryptocurrency for years, or even decades. Holders typically believe that short-term volatility is merely an irrational price movement and the true value and potential will be realized in 2040 or beyond.

Since a cryptocurrency exists only in the online world, it needs to be stored somewhere to be accessed in the future. There are generally two ways to store your cryptocurrency: cold storage or hot wallet.

A cold storage refers to an offline method of storage which requires the purchase of a hardware device. Since it is not connected to the internet in any way it is more secure from theft.

A hot wallet on the other hand is connected to the internet and mostly free to use through a platform like Coinbase. However, it is less secure and there have been many instances of theft.

Finally, a cryptocurrency holder can choose to spend some or all of their money. As each day passes more and more large corporations start accepting digital currencies. One of the more notable companies who accepts Bitcoin for payment in its online Xbox Store is Microsoft, whose founder Bill Gates said Bitcoin is “better than currency.”

Will you get filthy rich investing in cryptocurrencies? It’s certainly possible!

The many early believers who bought Bitcoin below $100 and cashed in near $20,000 made a hefty profit. But on the flip side, the unlikely investors who were late to the party and purchased near $20,000 are losing money to this day.

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